An Analysis of Alternative Corn Importing Strategies for Taiwan
Chen, Nen-Jing
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https://hdl.handle.net/2142/69886
Description
Title
An Analysis of Alternative Corn Importing Strategies for Taiwan
Author(s)
Chen, Nen-Jing
Issue Date
1988
Doctoral Committee Chair(s)
Leuthold, Raymond M.
Department of Study
Agricultural Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Agricultural
Abstract
Taiwan grain importers have been under the protection of government policies in importing feed grains since the early 1970's. However, the policy for grain importing will be liberalized in the near future. Under the liberalized purchasing environment, importers will be exposed to various risks in the international market, therefore this study designs, analyzes and recommends to Taiwan importers alternative purchasing strategies for corn from the U.S. The international use of futures markets as a risk management tool has become an important research subject in recent years. This study designs alternative importing strategies for Taiwan corn importers using the futures market; determines the timing of hedging through the use of price forecasts; develops an optimal hedging strategy to determine importers' hedging levels; determines the optimal quantity of physical product to buy and hold in each month utilizing the price forecasts and a quadratic programming model; simulates the costs associated with each strategy; compares purchasing strategies within the context of mean-variance criterion and stochastic dominance procedures; and finally provides marketing and pricing recommendations to Taiwan importers of corn.
It was found over the data set of 1975-1985 that for importers who buy corn monthly and are slightly risk averse, cash marketing is the best strategy. For importers who buy monthly and are more risk averse, a selective hedge strategy is the best alternative. However, for importers who are within the range of absolute risk aversion studied and buy more when the price and variance of price are expected to be low, the selective hedge strategy is always the best strategy. It is suggested by this study that a more sophisticated forecasting model should be developed for future research and that the forward pricing of the exchange rate should be incorporated to manage exchange rate risk.
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